This book is designed for beginning, intermediate and advanced traders. The authors in this book are leading experts in trading options and stocks. Most of the strategies in this book are divided into three sections:. In short, you will have all of the information you need to trade your new favorite strategy tomorrow. Some of the things you will learn in this book are:. At OptionPubit is our sincere hope that you take away several strategies that you can use when you are done reading this book.

Finally, make sure to subscribe to OptionPub. We provide free eBooks, on-demand videos and many other publications for active traders in all of the markets. Our collaborators are world-renowned industry experts and our content is provided free of charge in a relaxed and friendly setting.

Cheers to your trading success! Trading with a small account size is an issue many traders have to deal with at some point during their trading career. In a recent survey that we sent to traders, we asked what the reasons were for not registering for one of our upcoming Options training webinars. What really baffles me, is that traders often think they need to go to the futures or forex markets when they have a small account size. When in reality, you need a much larger account size to trade many of those markets when compared to options.

Unfortunately, people are so programmed to think trading options requires a large amount of capital. In this article, we will talk about some of the key strategies to focus on if you are trading with a small account size.

What do I consider a small account? We will take a look at 3 of my favorite strategies that you can use to increase your performance in your own trading. These are strategies that I feel all traders should have in their toolbox regardless of how big or small their account size. If you are a trader or investor you can probably remember back to when you first got introduced to the markets. As a result, in many cases traders go into trading options with the same approach.

Buying long calls and puts as a way to play the markets moving up or down is a common starting point. The problem with this approach is that buying long calls or puts is much different than buying or selling shares of stock. The prices of these options are influenced by other factors than just stock direction. Understanding how these different factors influence the price of an option can really help you improve your trading results in the long run. The option pricing model actually has 6 different inputs which can influence the movement in your options.

While stock price is a big input in the price of an option, there are other factors in play that are crucial to understand if you desire to see success with your trading. The 6 inputs in the pricing model of an option are Stock Price, Strike Price, Time to Expiration, Volatility, Interest Rates and Dividends.

We are going to talk about Volatility and Time to Expiration in more detail as these two can cause the biggest issues with the way many retail traders use options. Of the 6 inputs that go into the option pricing model 5 can be easily determined.

Stock price, strike price, time to expiration, interest rates, and dividends are easily found. The one wild card is volatility, as it is constantly changing throughout each trading session. The pricing model actually works backwards to determine which level of volatility is being used to generate the current price of an option.

It takes the 5 known inputs and backs them out of the current option price being quoted to get the volatility. This is known as Implied Volatility. This would happen if you were long a call option and got a move higher in the stock but a drop in implied volatility. This could result in a lower profit return or even worse no profit at all. We teach our students to let the markets determine which options we decide to trade.

The way we do it in the Thinkorswim platform is to use the IV Percentile tool. This number compares the current level of Implied Volatility being used to the levels of volatility that have been seen on that product over the last 52 weeks. Anything above the 50th Percentile means Implied Volatility is high while any reading below the 50th Percentile means Implied Volatility is low.

The reason we like to let volatility guide us is we are taking the view that over time the 50th Percentile will act as a magnet and will pull volatility towards it. When the volatility is high we will go to the premium collection strategies in our playbook.

This includes selling vertical spreads which is one of our favorite strategies. When Implied Volatility is high and we sell premium we are actually increasing our odds of success if volatility drops.

This happens because as volatility drops the options will get cheaper, which will allow us to close our short premium trades for more profit. When Implied Volatility is below the 50th Percentile we will focus on buying premium.

This is the case because if we get volatility to expand higher towards the 50th Percentile that will actually help our options increase in value faster.

If you can program yourself to follow volatility closely you will vastly increase your chances of success. We know that trading options is much like buying an insurance policy. Trading options is much the same way.

The longer you hold an option the less value it will have due to the time decay. You can actually limit the effect of time decay by going farther out in time. This is due to the fact that time decay moves in a nonlinear fashion. In other words, the closer you get to expiration the more value the option will lose each day that you hold it. Knowing this about time decay means we can place trades with better odds of success by going farther out in time. Many traders will look to the weekly options which expire each Friday because they are very inexpensive when compared to the options that expire once a month.

However, when trading the weekly options you have to understand the time decay can have a big factor on your trades. This will limit some of the effect of time decay and will allow you to hold your positions longer without the time decay eating away at those positions. If just blindly buying calls and puts, you are going to face an uphill battle over time with your options trading.

Sure you will have some really great winners from time to time but ignoring factors like Implied Volatility and Time Decay will ultimately lead to frustration. It will be hard for you to hit the consistent profits that we all want over time. However, flip the cards around and let these factors work in your favor and I think you will be amazed at how the growth in your account will improve.

Long Call or Put. When buying a long call or put, we need to make sure we have a strong opinion on which way the stock or ETF is headed in the near term. We have to keep in mind that whenever we buy an option the clock is ticking the second we decide to initiate the trade. The time decay will start to add up and potentially eat into the profit potential that we have.

This means not only do we need to be right on market direction, but the move needs to happen in our favor quick enough. To combat some of the negative features of buying an option, we like to be very picky with the criteria that we use when selecting the call or put option. In many cases, this will leave you with an out of the money option which has a very low probability of success. Instead, we like to trade the in the money options.

Our criteria has us going out days until expiration and buying the call or put option that is strikes in the money. This criteria is the same whether we are trading AAPL, BA, or C. The options had between days left until expiration and the 13 calls were one strike in the money from the entry point.

Click Here For More Details On How the Fast Track System Picks Market Direction. This is a perfect example of the leverage that options offer us. Regardless of the account size you are working with, this is a trade that will leave you with very little capital at risk. There are times when I want to make a directional bet but do so with a more conservative trade. This is where the long vertical spread comes in.

Out of all trade types, the Vertical Spread is my favorite as it is the most flexible strategy when it comes to trading options. When using a long vertical spread, we still need to have a strong opinion on which way the stock or ETF is heading in the near term. While the time decay is still going to be there like with a long call or put, the long vertical spread is able to limit the effect of that time decay slightly.

We like to use the long vertical spread when we are less sure of market direction. We are able to do this because a long spread is constructed by both buying an option and selling an option with a different strike at the same time. Vertical spreads offer a unique ability to control risk and reward by allowing us to determine our maximum gain, maximum loss, breakeven price, maximum return on capital, and the odds of having a winning trade, all at the time we open a position.

When setting up a long vertical spread we still like to trade the options that have between days left until expiration.

We structure the trade by always buying the option that is 1 strike in the money and then selling the strike that is closest to our target for that stock or ETF in the near term. The nice part about using this simple criteria is that it is the same when using call or put options. The criteria is also the same regardless of the symbol of the stock we are trading. For example, back in June we had our Options Fast Track system giving us a short setup on Tesla Symbol: Instead of going in and short selling the shares of stock, which could tie up thousands of dollars or capital, we decided to look at trading the options.

So what else could we do?

AbleTrend Trading Indicators - AbleSys

This trade had us buying the July put and at the same time selling the put. This is still a bearish trade so we make money if the stock moves lower. The trade off here is we will be left with a smaller winner if the trade does hit the target on the chart. Here is a great example of using options to open the door to some of the expensive tech stocks for a fraction of the price.

Use the long vertical spread to go where the action is without tying up thousands of dollars of capital. Trading long calls and puts or a long vertical spread give us great ways to put on an aggressive trade when we have a strong opinion on market direction in the near term. What if we are a little less certain of market direction?

Selling vertical spreads to open a position can give us a way of scratching out a profit even in a period of choppy price action. We do this by selling an option that is closer to the current price of the stock and then going out and buying an option with a strike price that is farther out of the money. By doing this, we are still able to be in a risk defined position but it also gives us multiple ways of being profitable.

When selling vertical spreads to open a trade we still like to use options with between days left until expiration. Why do we prefer to go out farther in time? In most cases the monthly options will have more volume and open interest when compared to the weekly options. This will make them easier to get in and out of trades at good prices. Going out to the monthly options will also give us more time to be right just in case the market moves against us initially. For example, back in early June we saw that the Real Estate ETF Symbol: IYR was overbought and we felt it was due for a pullback.

Instead, I wanted a trade that would make money if IYR moved lower or got choppy. We went out to the July monthly options and we sold the July This had us selling the The reason we would like a trade like this is it would allow us to make money 5 different ways:. We make money as the time decay adds up each day that we hold the trade. We make money if the implied volatility contracts.

In our case, we were fortunate that IYR did move lower, time decay did add up, and volatility decreased. By having a rule set in place, it allows us to be more consistent and eliminate much of the discretionary decisions that so many retail trades get stuck on.

Selling vertical spreads to open positions is a very powerful approach that many retail traders miss out on. While short spreads are not the holy grail of trading, they give us the flexibility that we need to make money in any type of market condition that comes our way.

Now that we have 3 options strategies that we can use to take trades right away, the next step is to determine how much risk we can take. One of the biggest reasons for traders failing to reach their profit goals is taking position sizes that are way too big.

I hear it all the time from newer students. If you can focus on small winners on a regular basis you will see the power of compounding take over. I would also much rather see a newer trader take small positions instead of big positions. With any trading system out there the statistics become more significant as the sample set of trades becomes larger. If you are just taking 1 or 2 trades at a time, it becomes a long shot to see the results you are looking for.

However, if you are taking trades now all the sudden we can get more diversification built in and also build our sample set of trades larger to make sure the odds are in our favor. Having a risk management rule in place is crucial to trading success. I have included a sample risk management template below. This is a very similar plan that I use in my own trading. That number could be different for you. Initially, you will want to try and keep the risk spread evenly across all the names on your list.

For example, trading one contract on GOOGL is not the same as trading one contract on C. Overweighting certain sectors from time to time will work fine as long as you are comfortable with the risk.

Never get into the situation where the outcome of one trade impacts your ability to take the next trade. Remember, we are looking for consistent long term success with our trading. As traders we want to be as diversified as possible. This means a diversified list of products on our watch list, but also a diversified list of trade types as well. We all love to trade the long calls and puts as they give us a ton of profit potential quickly on any big market move.

So we want to make sure we have safer trades on like a short vertical spread which will allow us to make money if the market stays slow and sideways. There are great trades that you can place with very little capital that will allow you to stay active in all market conditions. The more you mix up your trade types the more consistency you will see in your results long term. Learn how to trade options the NetPicks way with the Options Fast Track Hot List.

This list covers our favorite markets that we trade each and every day. Click on the link below to access the full list free of charge along with complete training on how you can use these tools to setup your own go to watch list of products. Take the discretion out of your trading and start looking at the markets like the pros do.

Click Here for Full Access to the Fast Track Hot List Training. Mike started trading back in as a finance major in college.

It was quickly apparent during one of his first business classes that there was great wealth to be made in the stock market. Not one to be patient and wait for his degree to start making money, Mike discovered the great leverage that can be used in the options markets.

This allowed him to start trading options with a very small account size while still in college. Mike found success early in his trading career and decided to take the leap into full time trading soon after.

Along the way, he had to learn many lessons the hard way like so many retail traders can relate to. Mike discovered the NetPicks trading systems back in and quickly became a customer. This was the missing piece to the puzzle. This has allowed him to trade full time for a living ever since. After learning the systems inside and out over the span of the next 2 years, Mike joined the NetPicks team as a trading coach in He quickly became the resident options expert and has been Lead Options Instructor ever since.

While he has dabbled in other markets over the years, trading options has become his go to market. Mike has worked with thousands of traders since and enjoys the opportunity to help others reach their trading goals. Most traders starting out usually begin with a small account.

In this video, I am going to assume that you have a basic understanding of how options work, and then I am going to show you some very simple strategies that have worked quite well for me in my years of trading options. So we are going to hit the ground running while I show you strategies that I trade each day with my own money.

I set up my trades using a disciplined approach where I manage my money. SIMPLY CLICK HERE FOR YOUR FREE COPY! His career as a trader started back in college when he first fell in love with the game.

He opened an eTrade account and spent his summers day trading around his job on the golf course. He attended college at St. Lawrence University in upstate NY where he majored in economics and competed on their NCAA Division I ski racing team with several future Olympians. Following college he packed the car and drove cross-country to the beach in San Diego, CA and took his first professional trading job.

He learned to trade professionally from a proprietary equity trading firm in San Diego. In he packed up the car and drove back east and headed to his first job on Wall Street in New York City. His career continued to grow and Todd became a Senior Technical Analyst at Forex.

He is a regular contributor on CNBC, with more than appearances, and he is currently in his second, three-year contract with NBC Universal. Todd founded his company, TradingAnalysis. He is happily married and a proud dad of twin boys. A tool that can significantly increase your probability of winning trades? That is why I am offering you a very powerful tool for free that you can start using today. If you are already using this tool and know how to use it, I hope to be able to further your knowledge and thus your use of it with this guide, so you can become a better trader…an expert trader!

Not only can this information be used to help you generate more option trading income, but not using this tool can lead option traders to making the number one trading mistake, which I definitely want you to avoid. Knowing what NOT to do can be just as important as knowing what to do. So, I will should you that as well.

Options trading has many more advantages than trading stocks, but is more complicated. For an individual trader, options can be a little intimidating, as well. That is why many investors trade options by purchasing out-of-the-money, short-term options, since they cost less than long-term options and it is simpler to trade them. For example, out-of-the-money calls those are options where strike price is above the stock price are especially popular because they are cheap, and seem to follow the old Warren Buffet paradigm we all love- buy low, sell high.

But is this always the best option strategy? The reason most traders do this is because they can buy a lot of them. At first glance, this kind of leverage is awesome, but do not let this glitter fool you because not losing money is just as important as making money!

One problem with short-term, out-of-the-money options is that you not only have to be right about the direction of the stock move, but you also have to be right about the timing. This dual objective of having to be right on the direction plus the timing really lessens the probability of an option trade being a winning trade when buying those. Everything that I teach my clients s based on the managing risk and increasing the probability of winning trades.

In all probability, the stock will not reach the strike price and the options will expire completely worthless. So in order to make money on an out-of-the-money option, you either need to outwit the market or get plain lucky. Being close means no cigar. You were right about the direction of the stock move, but since you were wrong about how far it will go within that specific time gsa forex travels pvt ltd, you would still lose your money.

And this is outright painful! Based on this trade example, a better goal forex trading audio books every trade can be to select trades based on what provides the most consistent positive returns, not a one-time, big winner.

Consistency is derived from making high probability trades based on reliable data and free nexon cash europe. Where there is a big disadvantage, such as the one you saw in the FB option scenario, you can usually just look at the flip side of the coin and see an equal and opposite advantage.

In this case being a seller of options gives you a huge advantage over being a buyer of options. All the pros know this and take advantage of it, and so can you. As a seller all of the details in the FB example stay the same, but in your favor, instead of against you. This is why professional trades look first to take advantage of selling options for profit generation and hedging. The most important option factor for income generation is understanding the concept of time and that is pretty simple as you just saw.

Time value is used for trading strategies that take advantage of the accelerated time decay on an option into its expiration. Options income strategies are very tied to time value and the impact it had on the price of an option.

It is that simple and etrade virtual options trading can use this information to make money. Time value TVthe extrinsic value of an option is the premium a rational investor will pay over its current exercise value intrinsic valuebased on its potential to increase in value before expiring. This probability is always greater than zero, thus an options is always worth more than its current exercise value. Take a look at the following chart to see just mark larsen forex review predictable and powerful this option-time paradigm is and answer one simple question.

This chart represents the time decay concept in options trading. In the day period the time decay is very small. Then, as you get closer to expiration, you can see that the time decay really accelerates. I call this turbo time decay and before you know it, your option can be worth zero. So here is the question…If the underlying security price was to go sideways, having no directional trend, would you have wanted to be long an option days out, or would you have rather sold an option?

While there is some slight variation, this is the common natural time value progression for all options. And it is seriously like falling off forex white bear v3 2ch a cliff, blindfolded. The free tool for determining the actual time decay of an option is called Thetawhich is provided on your brokerage platform. For example, a Theta of. Of course, Theta changes over time and increases the closer the options gets to its expiration date.

So you can see how important this date can be for options traders. And that is it, simple but very powerful when used correctly. Use the information provided by a Theta to check how much your options are decaying each day, if you own any at this time.

The following is an image of the Theta display from the Think how recruitment consultants make money Swim trading platform. Getting Theta usually involves just a simple click on your brokerage platform. So this example is Apple AAPL hans alexander binary options you can see the days to expiration are If you look at the Strike Price column and go down to the mark see green arrow and then across under the Calls section, you can see that the Theta value is.

You can see how you can increase your skills using Theta as a seller of options to stack the probabilities way in your favor when generating income by selling options instead of paying for them. The most common strategy is selling options, naked calls or puts, but this is not a hedged approach. You can easily reduce this risk, or hedge it, by purchasing long options to offset the un-hedged risk from selling options naked.

While hedging reduces the overall returns, it is much like having an insurance and it is worth that cost for risk management. Stock market lcn options takes advantage of time decay and there a number of great options trading strategies that can generate consistent income with limited risk. The most popular hedged options income strategy that can be used regardless of the market direction is the credit spread.

This strategy takes advantage of the time decay to make money while also reducing risk. You may be wondering how to select the right income option strategy. The goal of every trader should be to select trades based on what provides the most consistent positive returns and not always the greatest.

And one of the best ways to achieve this is by knowing the income option strategies that are available and then selecting the one that is the best for your trading style, trading plan and lifestyle. Bear call credit spread is best of you think the market is probably going to go down. The strategy involves selling one call with a lower strike price, while simultaneously buying one call with a higher strike in the ib roboforex malaysia month.

The bull put credit spread is best when you think that the market will probably go up. The strategy requires that you sell one put while simultaneously buying one put with a lower strike price in the same month. The long iron condor is known for being a non-directional, low-risk trading strategy.

Apprendre trader option binaire execute it you can combine a bull put credit spread and a bear call credit spread together.

Would you like to learn more how much money does a neurosurgeon make a week these option strategies that capitalize on time decay?

You can do this now by taking advantage of the special offer featured below. Larry Gaines has become one of the leading coaches for successful traders and investors. He continues to develop and host, every month, new trading educational programs to help traders and investors generate greater income from their investment capital with less risk exposure.

During his tenure as head of an international trading company that often traded a billion dollars worth of commodities in a single day, he learned first-hand the necessary elements of a successful trading system and the use of options. There are many ways to trade options or use options in trading. Many people trade options for the sole reason that forex rate today rawalpindi are much cheaper than trading stock.

It is kind of interesting that it is rare to find underwater stock options canada options trader that would ever buy a stock, or a stock trader forex courses in uk would ever buy an option.

I believe that both camps are wrong. You need to be able to trade both, or at least take advantage of both. The reason for this is that if you trade stock, you can minimize risk and maximize gain using options.

Buying is the opposite of selling. Long is the opposite of short. Bull is the opposite 24 hour what is binary options industry trading bear.

There are only two things that matter in options; if buying an option, it must go beyond strike in the money for you to be paid on expiration day, and if selling an option short, you can end up long or short the underlying stock at the strike price. If you keep these two things in perspective, your option trading will go a little smother. If you buy a call option, you are buying a right, not an obligation, to purchase a stock at indian stock market xml data download specific price the strike price on or before a specified date.

When buying a call option, you want the stock to go higher.

If you buy a put option, you are buying the right, not the obligation, to sell a stock at a specified price on or before a specified date. When buying a put option, you want the stock to move lower. Now the opposite side. If you sell a call option going short the option then you are selling the right to buy to another party, and if they exercise their right to buy, you must sell to them you are taking on an obligation and you could end up short the stock unless you already own at least shares of it.

Selling a call option when you do not own the stock is called a naked call, but if you own the stock it is a covered call. If you sell a put option, then you are selling the right to sell to another party, and if they exercise their right to sell, you must buy from then.

If you are short the stock, you will buy it back this is a covered putbut if you are not short the stock, then you could end up long the stock. Everyone has heard of Amazon, so we will start with it. Below is a daily chart of Amazon AMZN. You can see back in April when their earnings came out.

Notice since then that Amazon moves down to the area and then back up to the area. Now we can put a buy limit, good till canceled, in and wait for AMZN to sell back off and exercise our limit order. Nice trade, pat yourself on the back. Same trade with a twist. Now this does two things; a if AMZN gets to or lower at expiration, you will end up long the stock that is what is desired in this caseand b by selling a put option, you will bring in money. Based off the chart, AMZN is trading at So it would probably be good to wait a while before selling the put to get more premium, but since we cannot home equity loan adoption extended time in an article, we will use what we have the concept is the same.

The put is selling for around 3. So if we put an order to sell at 3. This is not the case unless you buy it back at a loss.

Remember the end game, you want to be long the stock from Let them exercise if they can, that is what we want. If we get exercised, then we will put a stop below and We will then sell a covered call and probably get another 3.

If AMZN drops and stops us out, we will need to buy back the covered call that now has turned into a naked callbut since AMZN has dropped, the call will decrease in value and we will probably be able to buy it back around 1. Which scenario do you like best, a 1: This is the luxury of options.

AMZN is a bit extreme since it is an expensive stock and is quite volatile. Below is a daily chart of CAT. Notice it has support around 85 and resistance around Next support is around 83, so we will use In the option chain below, the 85 put is going for around 0. If we get exercised, we place the protective stop at There are weekly options on CAT, however, we want to be able to finance the protective stop the best we can. By going out to the monthly option, we can get there.

If we add the two options together 0. If we are long from 85 and need to risk to The premium we bring in will cover the protective stop. Again we can have the standard 1: What will you do then? First, panic never solved anything so please get that out of you mind. But think about it very quickly. We did bring in premium when we sold the put, so we have reduced the risk somewhat. Next question is, if you just put a buy limit in and is sold off to that level, what would you normally do? You could sell a covered call at entry 85 on CAT or on AMZN and if you get called away, then you will make nothing on the stock but get to keep the premium from the options, still not losing anything.

You could sell at the money calls and it will reduce your loss considerably, especially on AMZN but not as much on CAT. Another thing, what if you end up long the stock, it does not stop you out, but is not called away from you. Even better in my opinion.

You brought the money in from the naked put and the covered call, and now you get to sell another covered call. Before selling the same strike price, however, look at higher strikes, you may be able to get the same premium as before if the stock has moved higher. There are many ways to scan why did dow drop yesterday stocks. Many have their own favorite stocks that change over time.

You will find some stocks that underwater stock options canada not have options. The key is to trade stocks that have some volatility so that the option premium is higher. Coke KO has options but since the stock does not move much the option premium is low and therefore you cannot finance the protective stop.

Below is a scan for stocks out of the DTI RoadMap software. Look at the Standard Deviation Std Dev column. The 60 seconds binary options system strategy 2016 the standard deviation, the more volatile the stock.

So I will look at these to see if they are trending with the overall markets, and if so then they are prospects for trading. Market direction is also important. When markets are bearish like we saw back inselling calls many times did not get exercised, however, if they did, then sell a covered put to use the premium to finance the stock.

But direction is important. First look at the year open, month open, and week open, and get a bonus for sign up for binary options it to the current price of the stock. If the stock is above all three it is strong, if below all three it is weak. If they are, then fxs forex srbija until a clearer picture can be seen.

However, 3M is below the year open but above the month and week open. If the market falls from here, 3M would be a good candidate to sell calls on and see it drop. The same can be done for futures contracts if you have experience with them. I like using options on bonds to help pay for the utilities each month. Utilities, no one likes to pay for them, but they are necessary. To help pay for the utilities, trading bond futures options seem to work well. It is traded by the bond price, not the interest rate of the bond, though, it is interest rate sensitive.

So if interest rates go higher, bond vistaprint stock market goes lower, and tcgkfnyst honest strategies to binary options interest rates go lower, bond prices go higher.

Bonds open at The price is displayed in decimal form or with a dash; The 23 is in 32 nd. Economic new will affect bonds, as they look for inflationary rising interest rates or deflationary falling interest rates indications.

Options on bond futures trade in 64 th increments. They trade as long as the bond futures are open and trading, so you can actually get out of your trade in the middle of the night, if need be. You will also notice that the strike prices are every point.

OptionsHouse Review - NerdWallet

This etrade virtual options trading give us enough back ground to discuss the Utility trade. There are weekly options on the bonds. Some platforms only offer the monthly options, so beware of that. We indian currency rate today uae looking for income, so we will be selling the options to bring in premium.

We want the option to deteriorate over the time of the option. The difference is the profit, So if we sell an option at 16, then if it doubles or goes 19 ticks against us, then we will get out of the trade. Next we need to look at the trend of bonds. Here is a daily chart on the ZBU5 September30yr Treasury bond future:. Notice bonds are in a downtrend. So selling call options will be the safest play since bonds will have a tendency to go down. We will try to sell options at the resistance point R1 or R2.

Of course, the closer it is to the resistance point the more premium that will be brought in and the further away from that point brings the least premium unless we go out further in time. Another thing to keep in mind, find out when the big economic news is coming out since bonds will react to it.

Look at the option chain below. Our R1 is around the strike. The is around the R2 on the chart and a little less risky since bonds have to decline another point to get to that strike. So you have to make a decision on which option to sell.

If today is June 3 and bonds are trading atwe will have to wait 8 days for the option to expire. As long as the bond futures stay below then the option will who do the uk government owe money to value each day.

If there is a big economic news day next week, we will need to either get out and take the profit we have, or be ready to exit if the bonds drop off the news. Doing this trade a couple of times a month can cushion the blow of the bills that come once a month. So one loss will scratch one win and a half for the most part. If you have never traded options on bonds, paper trade it for a couple of weeks to see how it goes. Once you get the hang of it, start paying some bills. We have walked work away from home tax allowance a couple of ways to bring in a little income and reduce the risk by financing the stops.

Option Trading with etrade

Buying equities is a good thing, but being able to gain more on the position from using options can help boot the account. If we expand to trading options on futures, we can help pay those utilities a little and have more for the grandkids when they come over.

But taking a little loss is not so bad when the return is much greater. CLICK HERE TO INSTANTLY VIEW the video discussing the trade in this article! Register for our next FREE event here! During the class you will learn about:. Reserve your seat and recording here! Geof took an instrumental role in developing the Pet adoption woodstock ga Method.

Before coming to DTI, Geof was a pipeline engineer working in Oklahoma and Texas. One of the most profitable ways to trade is to spot a short squeeze in a stock, commodity or index. They happen somewhat often in individual names, less often in commodities, and rarely in an index. Thus we are going to concentrate on looking at stock short squeezes that happen extremely often. In this chapter I will discuss what a short squeeze is, how trading technology and stock market liquidity a global perspective spot one, and finally orielly canadian stock market to trade a short squeeze using option trades in the simple form with a follow up in the form of a video that walks through a complex option approach.

Think of a name that makes no sense to the average trader. The valuation of that company is WHAT??? Think of names like Facebook or Amazon that have faced doubts and proven themselves to be worth the hype.

More often than not, though, the nonsensical valuation turns out to be true. This side truly believes in the vision and is willing to buy the stock up on this vision.

On the other end is the widespread fundamental view that the company is not worth its current trading price and should be significantly forex signals signal trading system. The result ends up, typically, crushing both sides of investors and making stock exchange hours for new years eve a lot of money if they know how to trade it.

It all starts with stock loan. Recall the basic definition of a short selling or shorting from Investopedia:. This is where things get interesting. The process for borrowing stock is not as simple as it might seem.

Here are the steps:. Step 5 is where things can go off the rails, and step 5 is what creates a short squeeze. Almost unilaterally, stocks that are hard to borrow are the ones that create short squeezes. To the point that if a stock is easy to borrow, I do not bother looking for a short squeeze set-up as they are so few and far between.

If traders truly believe that a stock is toast, they typically do not mind paying the short rate on the stock because they are very certain the stock is going to go down. However, the danger is in that it means there are very few shares to borrow.

Worse yet, clearing firms do not operate fairly. This puts the short in a position to get beat This means that a customer that was loaning out shares is considering selling his or her position. In this case I have two options:. Typically most people would rather choose the former. This increases buying demand in the stock, typically driving the stock higher. At the same time, the general public and day traders start buying up the stock as it is now a hot stock and a mover. They may or may not put their stock up for loan.

The stock being higher typically causes the customer to sell rather than hold, and the stock that was loaned is off the market, met with typically less supply. Given the rally in the stock, others step in to try to sell the rally in the name, or the trader moves to sell the stock the next day again. Thus, you are a speculator who sells a put option on supply of stock to borrow is lower and the supply of short traders is higher.

This can turn into a nasty cycle of a stock moving higher and higher and higher. At the end of the squeeze, all of the short stock sellers that do not have the capital to stay short cover the stock. The stock can double its price or more Then, the squeeze over, the firms that took their stock off loan dump the stock.

This crushes the guys that jumped into the hot stock as the underlying drops and drops and drops—ypically below where the short squeeze begins, until all of the hot stock longs are out…thus crushing the uninformed longs. The short squeeze is easy to spot from a chart perspective. If one is looking for them to trade, start by asking your broker for a list of stocks that are hard to borrow and what the rates on that hard to borrow might be. The higher the rate, the harder that stock is hard to borrow.

Here is RIG on March 1 st:. In addition the stock will likely be up BIG on the open, but despite the pop is likely to keep going. This is the time to make the point to go long the stock. However, one might want confirmation of a squeeze. Take a look at the implied volatility of the options. At the first move, the IV may go down as hedger and other market participants adjust risk on a rally. Additionally, IV has a natural inclination to fall when stocks start to rally.

However, after an initial drop in IV, the IV will start to rally. See the structure of RIG below:. Notice IV is ticking up with volume and the stock. One can then see what the IV does the next day. Intuitively, what does one THINK happens to the stock? Below is the full chart for this data set.

Notice the price action of RIG:. This is the classic short squeeze. Price action, volume and implied volatility all align to show that there is a major squeeze on. The key is to be patient and not to try to jump in too early but wait until all three factors happen:.

Once this happens, it is usually time to buy the underlying or set up a long trade using options. One of the beautiful things about a short squeeze is that it will allow the trader to set up a long trade that is somewhat simple. The IV tends to go up and up and up. And the stock tends to rally and rally, with intermittent random drops, but the IV will be stable on drops.

The beauty is that if one gets in on the beginning of the third day, often the option market has not fully figured out what is actually going on. This makes call options look favorable. However, at Option Pit we typically hedge everything. Thus we will apply a directional delta to a straddle or strangle. Take a look at the option montage from LivevolX. Now, recall this is the end of the day snapshot, not the cheap levels that were available in the morning. There is something going on in the energy sector.

Now that the straddle has been a home run, the trader would typically dump all of the calls locking in the huge winselling them at 2. The IV still has room to run, so the trader might then set up a new trade buying 13 calls this time just out of the money for about. The trader now owns the calls and the existing puts and has a credit in his or her pocket. If the trade slows down for even a second, unwind the whole trade. A whole new short squeeze trade may set itself up.

It can happen over the ebb and flow of trading multiple times. Now you have seen how to set up a standard short squeeze, you might consider signing up for Option Pit Live. We are offering a special trial to Option Pit Live, including our subscription chat room and strategy letter for new and budding professional traders. This chat room will give you special access to Option Pit live traders that are considered among the best in the world.

Additionally, the subscription comes with some amazing education that only subscribers get for free. Non-subscribers pay big dollars for the same information. This offer will only be available for a short period of time. Visit this page to join the team for a test drive. Mark Sebastian is a former member of both the Chicago Board of Options Exchange and the American Stock Exchange. He is a frequent guest on CNBC, Fox Business News, Bloomberg and First Business News.

Mark has spoken for The Options Industry Council, the CBOE, the ISE, the CME, and is a co-host on the popular Option Block Podcast and Volatility Views podcast. The most important trading floor for any trader, individual or professional, is the five-inch trading floor between his or her ears. Having the proper mind-frame and controlling emotions is critical to making good decisions under the pressure of the markets and, ultimately, to trading success.

It all comes down to discipline. We need to know why we are getting in, when to stay in and when to get out of a trade. At Top Gun Options a quality trade plan is the foundation for our disciplined execution in every trade. As flying fighters in the US Navy we planned everything, from a simple 30 minute maintenance flight to a 7 hour combat mission. Every mission had an objective and we always had a plan to achieve our objectives.

These plans spelled out exactly how we intended to achieve each objective. The team at Top Gun Options learned how to plan and plan well.

At Top Gun Options, we were trading before we joined the Navy to fly fighters, so we had built up some habits about how we went about our business of trading. Some were good, some were bad, but these habits lacked discipline and continuity. After all, our combat plans defined many things, to include: So this tactical planning we used every day out on the aircraft carrier seemed a perfect fit for the options trading world as well!

Where did this Greek debt crisis come from, how about Enron or WorldCom? Which bubble is going to burst next? Well, it seems to us, this definition of combat applies directly to the financial markets. In this lesson we are going to share with you our planning process. Is it perfect and suited for everyone?

We certainly like it and we believe that you will benefit by applying the same discipline to your trading. So just what is a plan? But, how does this definition work when you are playing in one of the most dynamic arenas in the world, where things are constantly changing and often appear to be directly against us?

It still works, but the plan has to suit the environment where it is going to be executed and we are executing plans in one of the most complex environments in the world, the financial markets.

So, we need to account for a few more things than cooking a pot roast. When I am giving a presentation on planning, I always ask the crowd to write down the components of a plan. This lesson will solve this issue. A trade plan is the foundation for disciplined execution. It allows us to keep our head on straight when all the talking heads are telling us the world is falling apart.

It memorializes our reason for being in the trade and helps us make good disciplined business decisions under the pressure of the markets. It is because we built a plan, before the heat was on, that allows us to remove as much emotion as possible from our trading.

In short, a trade plan is our tool to keep us disciplined in a trade. Risk management is built into the plan. We know exactly when to get out, what our maximum acceptable loss is for the trade and how we are going to get out or adjust the position to save profits or limit losses.

We define all of this before we get into a tight spot where emotions can take over and lead us to bad decision making. Laying out your risk parameters before being under the gun, will greatly assist you in suppressing your emotions and help you make good decisions.

In the Top Gun Options Pocket Checklist OPCLwe layout planning guidelines for several different option tactics. In each, we identify our profit targets and maximum risk parameters for each trade to assist you in building your plan.

Being disciplined and mapping out our risk parameters before we are deep in trades leads to Superior Execution. The decisions we make in the heat of battle are key to our success in trading. Ultimately Discipline, Risk Management and Superior Execution come down to the individual trader. As traders, we have to commit to being disciplined. We have to commit to sound Risk Management. We have to commit to achieving Superior Execution with our trading. It takes practice and courage to execute your plan, but the end result is consistent Superior Execution and more profits.

A plan has to be tailored to the environment we intend to execute. The planning process needs to flow sensibly, be easily understood and address as many potential scenarios as possible that can threaten the achievement of our objective. Our objective as traders and investors is universal:. This is why we play in this financial arena; there is no other reason. We want to make money, not lose it! Every trade plan we create supports this objective…we want to make money, not lose it!

If we are wrong in our trade, because we are not going to get them all right, we want to get out with minimal damage and keep our money to play another day.

It is our guiding precept for trading. After the objective, a Top Gun Options trade plan has seven components, designed specifically for trading options. A Top Gun Options trade plan…. Once the planning process is understood, a trader can complete the plan in as little as minutes. We will go through each one of these components in this lesson.

We will explain each as we come across them if not,there is a Top Gun Options Terms glossary in the back of the book for reference. Our Strategic Mindset is the stance we take regarding how we think our underlying asset our target or the market will perform given the current financial climate. Strategic Mindset falls into one of four categories:. We can qualify our mindset if needed; we can be short-term bearish if we think something is overbought and might correct.

Or we can be neutral to bearish or neutral to bullish. It just depends on our analysis of the current situation and guides our Tactic selection to fit our Strategic Mindset. When developing our Strategic Mindset we take a big to small approach. We start with the global financial situation and drill down to specific sectors, then to the stocks within a sector using both fundamental and technical analysis. As options traders we always take a look at our main barometer, the VIX, to tell us what the market is thinking and how the current market is priced.

Our Strategic Mindset drives many of our trading decisions. It helps us to analyze potential positions with an appropriate bias for the current market. It also gives us a baseline to challenge our own market assertions and those assertions of all the information we absorb. We want to be proactive in the development of our Strategic Mindset and verify or disqualify the information we hear around us. Our target is simply the underlying asset with which we are looking to open a position.

We will focus on an asset because we have clearly defined our Strategic Mindset on this target and we think we can profit from an options position supporting this mindset. There are literally thousands of optional targets: Stocks, ETFs, futures, commodities. We will focus on stocks while going through Top Gun Options. Commit criteria is our justification for entering in a trade.

Commit criteria should be easily understood and explained in 1 — 3 sentences. Commit criteria is supported by our Strategic Mindset, our fundamental and technical analysis, and the volatility of the target. Here is an example of what Commit Criteria might sound like if we had a bullish mindset on Freeport McMoRan FCX.

The stock has come off its recent lows with heavy volume and appears to be at the beginning of bullish trend with a short-term technical price target of Fundamentals remain strong and copper prices are rebounding. Commit criteria memorializes why we are in the trade. During the course of a trade, if we can no longer justify our Commit Criteria then we get out, immediately. In the Top Gun Options Pocket Checklist OPCL you will find 32 different option tactics.

An option position to support our strategy. If a trader wants to earn income from stocks in their portfolio by selling covered calls. This supports our objective and the strategy is to earn extra income with options. The Tactic to achieve this extra income is to sell covered calls on stocks in their portfolio.

To us at Top Gun Options, this is a more correct way to add detail to our intentions. In short, a strategy tells us what we want and a Tactic is how we get what we want.

Outlining Tactical Employment lets us know what we are getting into when we enter a trade. Think of Tactical Employment as defining the performance envelope for our trade. It defines the parameters, both good and bad, where the trade can perform. Mid-Course Guidance encompasses our trade management plan. The term comes from an air-to-air missile and refers to the control of the missile until just before it reaches its target.

At Top Gun Options, Mid-Course Guidance encompasses our Risk Management parameters in terms of profit goal and max allowable loss, threats to success, contingency plans and Eject Criteria. Max profit goals and max allowable loss are independent trader decisions based on individual investment goals and risk tolerance. At Top Gun Options we are not trying to hit the ball out of the park on every trade; base hits can add up fast.

When setting our max allowable loss, we determine the maximum we are willing to lose to see if this trade will work. This does not mean we have to wait to reach this point to get out, it is simply defining the most we are willing to let this trade work against us.

If we hit our max allowable loss, we get out; lick our wounds and move on to the next trade. Threats to success are occurrences that can negatively affect our position during the life of the trade. An example of a threat to our success: We were bullish and then implied volatility increased unexpectedly due to a negative economic report. Contingency planning is simply having a basic game plan if our trade is not going per design: Embedded in your options PCL tactics section is guidance for setting many of these parameters and can serve as a great starting point for determining your own risk parameters.

The Exit Plan is how we are going to get out of a trade. We never get into a fight unless we know exactly how we intend to exit. Factors for planning an exit include: It is important to know exactly how you are going to exit a trade before the volatility of the markets gets the better of you. Once you have the system down it will take 5 minutes max to complete and will keep you aligned very closely with our universal objective. Back in January we were beginning to think that Google GOOG was getting a little lofty in price.

Even though the talking heads could not stop talking about how great GOOG was and it was going to the moon non-stop. So we took a short term bearish Strategic Mindset on GOOG, 7 days, and decided to target GOOG with a bearish trade.

Thinking GOOG is going to give some back in the short term with some of the uncertainty surrounding the release of various mobile devices and some profit taking. On the technical side. We had some technical indicators and some fundamental uncertainty we thought would lead skittish traders to take some profits off the table.

The Commit Criteria is short, sweet and it made sense. Our Tactic was a Bear Call spread two strikes above where GOOG was trading. One of our intermediate tactics and in this instance it had a high probability of success. Sell JAN Call at 3. Buy JAN Call at 2. Time is our Friend, the longer that GOOG stays below our breakeven of For this trade we want volatility to decrease for the duration of the position.

The last part of our Tactical Employment is an understanding of the Greek effects. In this case Vega and Theta are what we were concerned with and in a bear call spread. Theta is our friend because the longer that we stayed below our breakeven, the better our chance of profit. We also wanted to keep volatility in our scan because an increase in volatility could decrease our chances of success.

Profit Target is 1. Eject if the premium gets to 2. Our Eject Criteria is set; in this case we had a tight stop for two reasons. First, the short term on the trade did not give us too much time for it to reverse if it went strongly against us.

Secondly, we were going against the long term trend and did not want to get caught in a minor downdraft. Our only contingency plan was to get out if the trade went against us; we did not want to roll this trade. This is all there is to putting a plan together. Once complete it should fit nicely onto one or two pages.

The actual trade plan is depicted below:. BEARISH, Short term 7 days on GOOG. GOOG currently trading at On the technical side, the 20 day MACD is diverging to the down side and RSI is indicating an overbought condition. This trade ended up working out for us and we bought it back for 10 cents and made 1. We got out prior to reaching our profit target because we had made a nice profit in the short time the trade was open and market volatility, the VIX, was starting to show signs of life heading into earnings season back in January.

Having a plan will substantially increase your trading Discipline; it lays out your Risk Management plan and will lead to consistent Superior Execution.

You can complete your plan before or after pulling the trigger. If we complete the plan after executing the trade, it is because we are familiar with the target and are comfortable trading it. After we pull the trigger though, we sit back and fill out the plan immediately.

Our planning process represents the minimum knowledge we want to have before we open a trade and it is the tool that gives us the confidence we need to execute our trades with Discipline, manage our risk based on our comfort with the current market climate and consistently manage our trades with Superior Execution. You may want a bit more or a bit less in your plan, but our system provides a solid foundation for customizing your own trade plans to suit your trading needs.

Your Options Pocket Checklist OPCL contains a planning guide that will help you build solid plans every time. Plus, we will walk you through many trade plans as we go through Top Gun Options. CLICK HERE to become an Options Weapons School member now!

Visit our site www. Whiz is a highly experienced financial business executive with decades of leadership and execution experience from the front lines to the front office.

Whiz was the founder and CEO of PEAK6 Media LLC, a financial media company. The company provided options and futures news, commentary, analysis, entertainment, and up to the minute reporting directly from the floors of the Chicago Board Options Exchange CBOE and Board of Trade CBOT. This exclusive information allowed retail and professional options and futures traders around the world to execute at a higher level. Whiz has written a book called From Sea Level to C Level: There is a very high degree of risk involved in trading.

Past results are not indicative of future returns. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice.

Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information.

By downloading this book your information may be shared with our educational partners. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Sir Isaac Publishing.

Most of the strategies in this book are divided into three sections: The strategy is then thoroughly explained along with illustrations and examples. Some of the things you will learn in this book are: Strategies for Trading Small Accounts with Options How to put the "Short Squeeze" on Options How to Take Advantage of Time Decay Trading Options How to Effectively Manage Your Risk Trading Options and much, much more At OptionPubit is our sincere hope that you take away several strategies that you can use when you are done reading this book.

By Larry Gaines, PowerCycleTrading. Minimize Risk and Maximize Gains with Options By Geoffrey A. Combat Trade Planning By Matt Buckley, TopGunOptions. Risk Disclaimer There is a very high degree of risk involved in trading.